Detrended Correlation Coefficients Between Exchange Rate (in Dollars) and Stock Markets in the World’s Largest Economies

Paulo Ferreira, Marcus Fernandes da Silva and Idaraí Santos de Santana
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Marcus Fernandes da Silva: Instituto Federal da Bahia, R. Emídio dos Santos, s/n—Barbalho, Salvador—BA 40301-015, Brazil
Idaraí Santos de Santana: Secretaria de Educação do Estado da Bahia, 3a Avenida Centro Administrativo da Bahia, 550—5 a —Centro Administrativo da Bahia, Salvador—BA 41745-004, Brazil

Economies, 2019, vol. 7, issue 1, 1-11

Abstract: The purpose of this paper is to verify the long-range correlation between the stock markets of the largest economies in the world and the respective exchange rate with the USD. According to theory, a negative correlation is expected, meaning that an increase in the return of one of the assets will cause a decrease in the return of the other. Using detrended cross-correlation and detrended moving average cross-correlation analyses and the respective correlation coefficients, we analysed this possibility, analysing behaviour according to different time scales. Our main results showed that in European markets, the exchange rate does not have a significant effect. This significant effect just occurs in the case of the Indian stock market, while in the case of the Japanese one, the relationship is positive. Japanese authorities’ monetary policy could be the reason for this different result.

Keywords: detrended cross-correlation analysis; detrended moving average cross-correlation analysis; exchange rate; stock markets (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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